Proplastics speaks on Zim’s economic arena
AMID utterances by the Central Bank and Treasury that the economy was on a recovery path between January 2022 to June 2022 in their half-year fiscal and monetary policies, the leading plastic pipes manufacturer, Proplastics Zimbabwe Limited, says there is nothing to ululate for during this period as the economic recovery remained a nightmare coupled by austere working conditions that affected normal business functionality.
In a statement accompanying its halfyear financials for the period ended June 30, 2022, the Group said there was nothing good achieved by the nation as far as improving the economic environment is concerned.
e Group said the economy remained bleak up to June 2022, courtesy of a non-functioning foreign currency auction market, exchange rates disorder, rapid inflationary growth, electricity blackouts and hawkish economic policies put by the government which subdued performance.
e Central Bank governor, John Mangudya in his Monetary Policy Statement (MPS) released on August 11 said policies put by the government during the half year were “robust” in addressing economic challenges and these included spiking the bank policy rates and banning of lending. e governor said these policies instilled fiscal discipline and exchange stability.
However, Proplastics dismissed these claims saying the economic fundamentals were out of order, especially currency stability, exchange rates, foreign currency availability, provision of electricity to power industrial activities. It even underplayed the impact of Russia-Ukraine war on its business operations.
“Raw material supply situation was stable despite the Russia/ Ukraine conflict and post effects of the Covid-19 pandemic, the factory was, therefore, able to run largely uninterrupted by shortage of raw materials for the period under review,” the Group’s chairperson Gregory Sebborn said in a statement accompanying the financials.
e Group said that the spiking of interest rates thrice within six months with the motive of reducing speculative borrowing and stabilising the exchange rates which Mangudya praises wasn't all water under the bridge, but was a double-edged sword. is was unfolded through the Group’s finance costs and income tax expenses which almost quadrupled during the period under review.
e Central Bank spiked bank policy rates by 20 basis points from 60% in January to 80% in April, which was a global record high. Barely six months, Mangudya’s administration rocketed the rates by 120 bases points to another global record high of 200% making borrowing too expensive.
“Borrowing rates were significantly increased towards the end of the period, impacting negatively on the cost of doing business,” Sebborn said. “e supply of electricity was unstable during the period, causing massive interruptions to production with the business having to shut the factory on several occasions.
“It is estimated that business lost approximately 19 days of production due to power supply interruptions during the period.”
Meanwhile, the group suffered hugely from the shortages of foreign currency in the country as the RBZ-governed auction market remained inefficient and under-capacitated to perform its duties.
is caused a disparity between official and parallel market rates as the black market remained the only viable source to obtain foreign currency. e scarcity of foreign currency even affected the Group’s relationship with suppliers as it failed to meet its dues in time.
According to the Group, the official exchange rate closed the period at ZW$366 to 1 USD from a December 2021 rate of ZW$111 translating to a 203% increase. In the same vein, the CPI index rose from a closing rate of 3,977 to 8,707, which translates to a 120% movement.
“e settlement of foreign currency allocations from the auction platform continued to lag and this caused significant pressure on the procurement of requisite raw materials for the business and relationships with preferred suppliers of these raw materials.
“All these changes had a significant impact on the financial performance of the business which, despite recording a trading profit from normal operations, reflected a loss for the period as a result of having to account for significant exchange losses arising from the inability
Financial performance
Revenue for the Group increased by 21% to ZW$3,1 billion from ZW$2,6 billion in the prior year with the exports contributing 8% to total revenue in the period under review which was, however, just under the target of 10%. However, volumes retreated 2% compared to the similar period last year.
“It is still important to note that a significant portion of the Group’s revenue was recorded at the auction interbank rate having been received in United States dollars while there was a significant movement in the rate during the period under review, the gap with the alternative market rate remained high.”
Due to the rapid depreciation of the Zimbabwe dollar against major currencies, particularly the United States dollar, exchange losses amounted to ZW$255 million for the period, compared to ZW$29 million in the prior period with outstanding foreign obligations as of 30 June 2022 amounting to US$3,7 million while EBITDA fell to ZW$297 million from ZW$616 million in the prior period.
Financial costs soared to ZW$117 million from ZW$33 million, translating to a 248% increase.
is was a result of a depreciating currency and record interest rates by the Central Bank which made borrowing costly.
Income tax costs also rocketed to ZW$303 million from ZW$243 million during the same period in 2021.
As a result, the Group endured a loss after tax of ZW$264 million from a profit of ZW$165 million in 2021.
“e Group closed the period with cash and cash equivalents amounting to ZW$166 million while the outstanding amounts from the Auction were accounted for under receivables and not a cash and cash equivalents as they were long overdue,” Sebborn said. — Equity Axis News.